Brown's pledge on the NHS - and now for the tax rises

The chancellor, Gordon Brown, yesterday signalled that taxes will have to rise to turn Britain's rundown NHS into a "world-class health service" as he threw the government's full weight behind proposals for a massive boost in spending over the next 10 years.

After what he called 50 years of underinvestment, Mr Brown used his pre-budget report to urge devoting "a signficantly higher share of national income to the NHS" and challenged the Conservatives to support a national consensus for a modernised, better funded and publicly funded health service.

The chancellor seized on the interim findings of the Wanless report into the future funding of the health service in Britain - which rejected the Conservative option of using insurance top-ups to boost the revenue raised from taxes in favour of higher investment funded fully though the public purse.

Labour sources said Mr Brown' statements marked the turning of the tide in the debate about public spending, stressing that the government would exploit its second landslide majority to make the case for higher taxes to pay for improved services.

"This means higher taxes. Of course it does," one senior government source said last night. "The reason we have less good health outcomes than other countries is that the NHS has been underfunded. This is as significant for us as independence for the Bank of England."

Mr Brown used a £1bn windfall from lower interest payments on the national debt to top up the NHS budget next year, but said pressure would mount over the coming years as a result of technological innovation and rising public expectations. The government's goal was "a world-class health service that meets the needs of all the people in Britain and puts patients first."

Although all parties interpreted the speech as a clear hint of higher taxes at the next election and beyond, the strong backing for an NHS fully funded by the public means that pressure will intensify from Whitehall on doctors and other NHS staff to further raise their performance and persuade voters that the extra cash will be well spent.

Mr Brown shrugged off suggestions that the downturn in the global economy, intensified by the events of September 11, would have a marked impact on the UK. He predicted a modest slowdown in growth next year, followed by a rapid recovery in 2003, with lower interest rates and higher public spending ensuring that the UK does not follow the US, Germany and Japan into recession.

Britain had the strongest growth in the G7 industrial nations, and for the first time in a century lower unemployment than in Japan and the US.

The Conservatives warned, however, that Mr Brown's plans represented a "black day for health care in Britain", a sign that the next six months will see a prolonged battle be tween the government and the opposition over whether improvements to the NHS should be paid for by higher taxation or by top-up insurance.

Both the shadow chancellor, Michael Howard, and former chancellor, Kenneth Clarke, argued that the promised surge in public spending would prove "quite unsustainable" as the economy faltered.

NHS unions at all levels welcomed the extra cash and the prospect of much more if taxes are raised. In the Commons, Mr Brown's old rival, Peter Mandelson, also predicted that voters would be willing to "make the personal financial sacrifices that may well be asked" to finance a better NHS.

Health officials stressed that the Wanless report confirms that the NHS's problem is decades of under-investment, not its basic principles. "We've had it on the cheap, it can't go on," said one.

The Fabian Society, which wants health taxes ringfenced (an option Mr Brown rejects), said: "The chancellor has finally broken New Labour's taboo. An open, public debate about higher taxes can finally be held - not before time."

Labour MPs gave strong backing to the chancellor's plans for the NHS and also supported the other main theme of the pre-budget report, a boost to the incomes of poor pensioners.

In a tacit admission that the 2000 increase in the state pension of 75 pence a week was a serious blunder, the chancellor said that the pension would in future always rise by at least £100 a year, and by more if inflation was higher.

The new pensioners' tax credit, due to be introduced in 2003, will mean an extra £600 a year for a single person living on the basic state pension with a £1,000 a year private pension, while a couple with a £1,500 a year pension will be £900 better off.

The chancellor admitted that the public finances would be affected by slower growth, with borrowing £10bn higher next year than had been predicted in the budget. He said, however, that the underlying position was strong enough to cope with the £2.7bn costs of foot and mouth and the £250m needed to pay for the war against terrorism and additional humanitarian assistance for Afghanistan. He said that next year's spending review would see Britain's aid budget rise as a proportion of GDP (gross domestic product).

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